Excerpt:companies act (7 of 1913) - section 105 - company - agreement - contract - comparative citation: 1932 air(pc) 240.....company with regard to the shares now in question, and further praying that the sum of rs. 31,250 paid as application and allotment moneys with regard thereto might be paid to the executors, with interest thereon at 12 per cent per annum. the foundation for this application was (not unnaturally) the fact that the court had already adjudicated upon the agreement entered into on 12th august 1922, and 13th september 1922, and had in proceedings between the same parties pronounced it to be illegal and void. judgment was pronounced by mukerji and young, jj., on 20th november 1929. the learned judges held that the application was out of time, not having been made within 30 days of 19th july 1927, being the date on which the court had refused the application of the executors to postpone the.....

Judgment:

Lord Russell of Killowen:

In this appeal, and in another appeal (No. 86 of 1930), in which the same parties are concerned, the relevant facts cover much common ground, and they were accordingly heard together. Lala Raghu Mal (who will be referred to as the testator) was a shareholder in a company (herein called the company) named the Dehra- Dun Mussoorie Electric Tramway Co., Ltd., which was incorporated under the Companies Act 1913, on 23rd August 1921. He carried on business under the style of Madharam-Hardeo Das at Calcutta and under the style of Madho Ram Bud Singh at Delhi. On 23rd February 1922, he entered into a contract in writing with the company (modified in some respects at a later date) by which he agreed to supply large quantities of tramway construction material to the company. Cl. 16 of the Contract was in the following terms :

"The company shall pay to the contractors by way of advance when the contractors have placed the orders in accordance with the terms of para. 6 above, 25 per cent of the value of such materials for which firm orders shall have been placed as aforesaid by the contractors. Any amount of advance or advances so paid shall be deducted from the final payments for the respective materials as in para. 13 above,"

On the same date a sum of Rs. 27,000 was paid to the testator, and a letter was written to him, signed by one Beltie Shah, as managing agent on behalf of the company, in which it was stated that :

"We have today paid you Rs. 27,000 (rupees twenty-seven thousand) by way of an advance and this amount will be deducted from your bill for the second shipment. Your receipt for the above amount will be understood to have been given on acceptance of these terms."

A receipt dated 23rd February 1922, was given on behalf of the testator for this sum of Rs. 27,000 : "being the amount of advance for the order for rails placed with us by them in terms of their letter .... dated 23rd February 1922. This amount is to be adjusted hereafter from our bills for supply of rails."

Some correspondence took place later in the year between the parties relative to this sum, but the contract between the parties in relation thereto must, their Lordships think, be sought only in the documents of 23rd February 1922. On 12th August 1922, a conversation took place between the testator and Beltia Shah, as a result of which the testator signed or authorized the signature on his behalf of two forms (dated 12th August 1922) applying for further shares in the company. By one form he applied for 10,000 ordinary shares of Rs.10 each, by the other he applied for 250 preference shares of Rs.100 each. It will be sufficient to set out the terms of the application form for the ordinary shares. It was addressed to the directors of the company and ran thus:

"Having paid to the company's agents, the Messrs. T. Beltie Shah Gilani, the sum of Re. 1 par share on 10,000 ordinary shares of Rs. 10 each in the above company, I request you to allot me that number of shares, upon the terms of the company's prospectus, dated 15th August 1921, and I hereby agree to accept the same or any smaller number of shares that may be allotted to me, and to make further payments thereon in accordance with the prospectus, and I authorize you to register me as the holder of the said shares."

Although the forms state that moneys have been paid, no payment in respect of the shares was in fact made until 13th September 1922.

What exact agreement was come to on 12th August 1922, can only safely be gathered from the terms of the following letter (No. 3452 M. H.) which is dated 13th September 1922, addressed to the testator's firm, and signed by the secretary of the company:

"With reference to the arrangements arrived at in Calcutta with your principal, Lala Raghumal, when the latter agreed to take additional shares of the face value of Rs. 1,25,000, the applications for which you have already submitted in consideration for the same, we hereby agree to place our orders for materials required for the tramway through you and to give you consideration of all reductions which may be obtained either by you or by us on any tender submitted to our Consulting Engineers for the respective materials aforesaid.

It is understood that you will pay us now the application and allotment money for these shares and that the balance of money on these shares will be payable by you on or after April 1923, either by giving us credit in the invoices for materials or by cash payments. The orders for the material aforesaid will not be placed by you unless and until our Consulting Engineers approve of the respective firms or suppliers. All other conditions relating to this arrangement will be the same as already exist between us by virtue of the agreement dated 23rd February 1922.

This arrangement includes orders to be placed by us for the proposed extension between our present terminus at Mussoorie and the Library. It is understood that the proposed extension will be carried out as and when the company decides."

On the same day the company wrote two other letters to the testator, agreeing to give him 10 per cent commission on certain tramcars and equipments for which orders had already been placed elsewhere. On the same day there was paid to the testator out of the company's funds a sum of Rs.35,000, for which a receipt was given in the following terms:

"Received from the Dehra Dun-Mussoorie Electric Tramway Co. Ltd., the sum of Rupees 35,000 (Rupees thirty-five thousand) only being advances for orders placed with us as per their letter No. 3452 M.H. of date.

"Dated 13th September 1922,"

On 13th September 1922, the application and allotment moneys payable in respect of the shares covered by the application forms were paid to the company by the testator. The shares were allotted, and the testator was entered in the share register of the company as the holder of the said 10,000 ordinary shares and 250 preference shares, which will be hereafter referred to as the shares now in question. The company failed to perform its obligations under either of the contracts above referred to, with the result that in the month of August 1924, the testator instituted in the High Court of Calcutta a suit (No. 2251 of 1924) claiming damages and other relief in respect of the breaches by the company of the said contracts. Before this suit came to trial the company was ordered to be wound up by the High Court of Allahabad, the commencement of the winding up being 29th January 1926. The testator died on 5th September 1926. The five appellants in Appeal No. 86 of 1930 are his executors.

On 25th November 1926, the Official Liquidators of the company served a notice on the testator's executor's that the list of contributories of the company would be settled on 7th January 1927, and that the executors were included in the list in respect of the shares now in question. In January 1927 the executors applied to the Court at Allahabad asking (1) for permission to continue the suit No. 2251 of 1924; and (2) that their names should not be put on the list of contributories until that suit had been disposed of. On 19th July 1927, the application, in both its branches, was refused. The executors therefore brought forward their claims for breaches of contract in the liquidation. Judgment on them was delivered on 14th May 1929, by Mukerji and Young, JJ. In respect of the claim to damages for breach of the earlier contract there was awarded to the claimants as damages a sum of Rs. 7,884, with interest at 12 per cent per annum from 1st July 1923, to the date of the winding up of the company. In respect of the claim to damages for breach of the later contract, the learned Judges held that the contract was an illegal agreement being in contravention of S. 105, Companies Act, 1913, with the result that, although there had been a breach on the part of the company, the claimants could recover no damages.

Meanwhile, on 26th March 1928, the Official Liquidators of the company had made an application in the winding up against the executors, by which they sought to recover from them as debtors to the company (amongst other sums) the said two sums of Rs. 27,000 and Rupees 35,000, and in addition, a sum of Rupees 7,703-13-0, balance shown to be due on an account in the books of the company, which included as debits against the testator the said two sums of Rs. 27,000 and Rs. 35,000.

Judgment on this application was delivered by the same learned Judges on 14th May 1929. They held, apart from the question whether any part of the claim was barred by limitation, (1) that the sum of Rs. 27,000 was only an advance towards price and not a deposit or earnest money, that the liquidators were entitled to recover it, but that the executors were entitled to set off against it the damages awarded to them as aforesaid; (2) that the sum of Rs 35,000 was paid also by way of an advance towards price and not as a deposit or earnest money, and that the liquidators were entitled to recover it; and (3) that they were also entitled to recover the balance on account of Rupees 7,703-13-0.

Upon the questions of limitation their findings were as follows: As to the sum of Rs. 27,000, they held that it became repayable at the end of June 1923, when the company made default in taking delivery of goods, and that accordingly the period of limitation (whatever it might be) commenced to run on 1st July 1923 ; that Art.51, Sch.1, Lim. Act, applied and that accordingly the period of limitation would not expire until 1st July 1926. As regards the sum of Rs.35,000, they held that the contract under which it was paid being illegal, the money became immediately repayable as money had and received on 13th September 1922. If the company had known of the transaction, then Art.62 would apply and the period of limitation would expire on 13th September 1925. They found however that the company was never aware of the payment, and that either Art.95 or Art.120 applied, with the result that the period of limitation would not expire at the earliest until 13th September 1928. As regards the balance of Rs.7,703-13-0, they held that the period of limitation began to run on 31st March 1924, the end of the year of account, with the result that under Art. 85 the period did not expire until 31st March 1927. It will be observed that in the case of each of the three items the learned Judges found that the period of limitation had not expired, but was still current at the date of the commencement of the winding up, viz., 29th January 1926. Upon that footing they held that all three sums were recoverable, upon the ground that the rule of limitation would cease to apply to any debt not already barred at the commencement of the liquidation :

" If any claim happens to be within limitation when the winding up commenced, there would be no further application of the rule of limitation. "

In the result they allowed the claims of the Official Liquidators for recovery of the three sums, amounting altogether to Rs.69,703-13-0, with simple interest at 9 per cent per annum, from 31st March 1924, to the date of the claim, with interest upon the aggregate amount (viz. Rs. 94,710-2-0) at 6 per cent per annum until realization. The next event was a petition presented to the High Court at Allahabad by the executors, praying that their names might be removed from the list of contributories of the company with regard to the shares now in question, and further praying that the sum of Rs. 31,250 paid as application and allotment moneys with regard thereto might be paid to the executors, with interest thereon at 12 per cent per annum. The foundation for this application was (not unnaturally) the fact that the Court had already adjudicated upon the agreement entered into on 12th August 1922, and 13th September 1922, and had in proceedings between the same parties pronounced it to be illegal and void. Judgment was pronounced by Mukerji and Young, JJ., on 20th November 1929. The learned Judges held that the application was out of time, not having been made within 30 days of 19th July 1927, being the date on which the Court had refused the application of the executors to postpone the placing of their names upon the list of contributories until their suit in the High Court of Calcutta had been disposed of. This decision turned upon a question of construction of the Allahabad High Court Rules under the Companies Act. The application was however also considered on the merits and dismissed, upon the ground that there existed a valid contract to take the shares to which the illegal agreement was only collateral.

The two appeals which have been presented to His Majesty in Council, and have been argued before the Board, may now be defined. The one (No. 127 of 1930) was presented by four of the testator's executors against the liquidators and the remaining executor, and seeks to reverse the High Court's decree dismissing the application in regard to the list of contributories. The other (No. 86 of 1930) was presented by all the executors against the liquidators, and seeks to reverse the decree of the High Court passed in accordance with the judgment which allowed the claims of the liquidators to the three sums of Rs. 25,000, Rs. 37,000 and Rs. 7,703-13-0. There has been no appeal from the High Court's decree upon the claims of the executors in the liquidation for damages for breaches of contract. Their Lordships have deemed it advisable to reserve further consideration of appeal No. 86 of 1930, but they do not consider it necessary to delay dealing with appeal No. 127 of 1930. Upon that appeal it was contended (1) that it had been decided as between the parties in other litigation that the arrangements of 12th August 1922 and 13th September 1922 constituted one indivisible contract, which was illegal and void ; (2) that these matters were res judicata, and (3) that since the contract to take shares was void, the executors were under no liability in respect of the shares, but were entitled to have their names removed from the list of contributories, and to have the application and allotment moneys repaid. Other arguments were advanced, but in their Lordships' opinion, this appeal should be dismissed upon one short but sufficient ground. They will assume in favour of the appellants that the matters claimed to be res judicata were res judicata within the Code of Civil Procedure, but although they are prepared to make this assumption, they desire to state clearly that they do not assent to the view of the High Court that the contract in question contravened the provisions of S.105, Companies Act. But even with this assumption made in their favour, the appellants cannot, in their Lordships' view, succeed.

Whatever may have been the rights and liabilities of the testator before the winding up intervened, the position was altered by the happening of that event. At the commencement of the winding up he was and had for over three years been entered on the register of shareholders as the holder of the shares now in question, with his full knowledge and assent. On the winding up, S.156, Companies Act, came into play. His liability under that section in respect of the shares was absolute and flowed from the fact of his being on the register in respect of those shares. The original contract may supply the reason for his name having been placed on the register in respect of the shares, but after the winding up his liability in respect of the shares arose ex lege and not ex contractu. It was conceded that the position of the executors was no better than that of the testator. In their Lordships' opinion, this point disposes of the first appeal, which should accordingly be dismissed. This view renders it unnecessary to consider whether the application was out of time. Their Lordships however think it right to state that, as at present advised, they are unable to understand how the period of 30 days mentioned in R.58 of the Rules before mentioned can have commenced to run unless and until the notice contemplated by R.57 had been served. This admittedly was never done. Their Lordships will humbly advise His Majesty that this appeal (No. 127 of 1930) should be dismissed. The appellants will pay the costs of the appeal.